A three-stage game model of plastic circular supply chain management in the context of cap-and-trade and plastic packaging regulations.

Circular supply chain management (CSCM) has become an emerging solution against plastic pollution and carbon emission associated with plastic production. This paper develops a three-stage game model to investigate decisions of three critical players in plastic CSCM, including a petrochemical company that produces virgin plastic and faces a cap-and-trade regulation, a multinational company (MNC) with a Scope 3’s emission reduction commitment that sells products in two markets with or without a plastic packaging regulation, and a plastic recycling company that collects and produces recycled plastic. Specifically, the petrochemical company first determines the optimal carbon reduction effort level. The plastic recycling company then determines the optimal price for recycled plastic. After observing the price of recycled plastic and the level of petrochemical company’s carbon reduction effort, the MNC finally determines the optimal proportion of recycled plastic to be used in product packaging. Our results show that the cap-and-trade regulation could encourage the petrochemical company to make greater effort to reduce carbon emission, but possibly lead to a reduction in the use of recycled plastic in packaging by the MNC. Higher plastic fines could incentivize the MNC to use more recycled plastic in the packaging, which is a disincentive for the petrochemical company to make carbon reduction effort. The MNC’s commitment to Scope 3’s carbon reduction contributes to an increased use of recycled plastics, but surprisingly, this results in more carbon emission from the petrochemical company. Interestingly, the total carbon emission of the plastics circular supply chain increases and then decreases as the Scope 3’s commitment by the MNC increases. [ABSTRACT FROM AUTHOR]